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Provide reasons why arbitrage gains exist

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Reference no: EM132914229

Violet Inc. announced it would purchase Organic Inc. by swapping 0.8 share of Violet Inc. stock for each share of Organic Inc. stock. After this announcement, Violet Inc. share price is $15 and Organic Inc. share price is $11.

Problem (i) Explain a strategy that a merger-arbitrageur would take to make arbitrage gains.

Problem (ii) Provide reasons why arbitrage gains exist.

Reference no: EM132914229

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